Apple’s Design Advantage

As the iPod went mainstream, Apple’s EarPods became a fashion symbol in subways, gyms and on sidewalks around the world. EarPods were a visible sign of Apple’s growing influence in the early 2000s.

We even ran an informal survey on public transportation in San Francisco, counting the percentage of EarPods vs. other headphones. Over time, we watched that metric climb alongside Apple’s share price.

I remember thinking, in late 2006, that Apple should differentiate the headphones that come with its to-be-announced smartphone making them black — a status symbol for those who had upgraded. But I was missing an obvious truth that @keintzb pointed out recently on Twitter:

Apple wants them to standout! Remember the original headphones? They were part of their original marketing, they were such a status symbol!

We estimate that AirPods revenue was $2.4B in the recently reported March quarter, up 101% y/y. We expect the AirPods line to generate $12.2B in revenue this year, growing 43% to $17.5B in 2021. On Apple’s most recent earnings call, Tim Cook pointed out that Apple’s Wearables business (including AirPods, Apple Watch and Beats) is now the size of a Fortune 140 business.

Design Will Be Central to Apple’s Success with Glasses

Across its entire product ecosystem, including hardware and software, Apple has monetized its design advantage to achieve scale quickly. Apple Watch, for example, became a $5B business in less than three quarters from launch. Apple is now the world’s largest watchmaker. Apple’s core competency in design is widely appreciated by Apple users but under-appreciated by investors as an economic driver.

Rumors surrounding the new augmented reality glasses product surfaced this week. Jon Proser claimed that Apple had been planning to show “Apple Glass” for the first time later this year at the fall event, but that the reveal may be delayed due to restrictions on in-person gatherings. Instead, Proser believes the company may announce Apple Glass in early 2021 for a late 2021 or 2022 launch. We continue to expect Apple to launch some sort of AR glasses in 2022.

The launch timing is uncertain, but one thing is clear: design will be central to Apple’s success in the glasses market. Apple’s track record with wearables, dating back to the EarPods, gives us confidence that Apple will lead the way in the augmented reality glasses category as it emerges over the next few years.

As wearables become the dominant mode for our digital interactions, Apple is well-positioned to own the future of personal computing.